QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-34220

3D SYSTEMS CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE

95-4431352

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

333 THREE D SYSTEMS CIRCLE

ROCK HILL, SOUTH CAROLINA

29730

(Address of Principal Executive Offices)

(Zip Code)

(803) 326-3900
(Registrants Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o

Smaller reporting company o

(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act.) Yes o No þ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to
be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.

Shares of Common Stock, par value $0.001, outstanding as of April 22, 2011: 25,067,226

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for (benefit of) deferred income taxes

341

41

Depreciation and amortization

2,410

1,511

Provision for bad debts

469

(4

)

Stock-based compensation

387

267

Loss on the disposition of property and equipment



2

Changes in operating accounts:

Accounts receivable

474

1,590

Inventories

(2,355

)

(1,982

)

Prepaid expenses and other current assets

(1,075

)

(165

)

Accounts payable

(7,445

)

1,405

Accrued liabilities

1,009

92

Customer deposits

45

(84

)

Deferred revenue

(843

)

(195

)

Other operating assets and liabilities

50

271

Net cash provided by operating activities

289

4,767

Cash flows from investing activities:

Purchases of property and equipment

(475

)

(254

)

Additions to license and patent costs

(66

)

(118

)

Cash paid for acquisitions, net of cash assumed

(22,125

)

(2,600

)

Net cash used in investing activities

(22,666

)

(2,972

)

Cash flows from financing activities:

Proceeds from issuance of common stock

53,985



Proceeds from exercise of stock options and restricted stock

1,532

217

Repayment of capital lease obligations

(55

)

(52

)

Restricted cash

(1

)



Net cash provided by financing activities

55,461

165

Effect of exchange rate changes on cash

395

(237

)

Net increase in cash and cash equivalents

33,479

1,723

Cash and cash equivalents at the beginning of the period

37,349

24,913

Cash and cash equivalents at the end of the period

$

70,828

$

26,636

Supplemental Cash Flow Information:

Interest payments

$

145

$

149

Income tax payments

258

125

Non-cash items:

Transfer of equipment from inventory to property and equipment, net(a)



430

Transfer of equipment to inventory from property and equipment, net(b)

5

369

Stock issued for acquisitions of businesses



2,000

(a)

Inventory is transferred from inventory to property and equipment at
cost when the Company requires additional machines for training,
demonstration or short-term rentals.

(b)

In general, an asset is transferred from property and equipment, net
into inventory at its net book value when the Company has identified a
potential sale for a used machine. The machine is removed from
inventory upon recognition of the sale.

The accompanying condensed consolidated financial statements include the accounts of 3D
Systems Corporation and its subsidiaries (collectively, the Company). All significant
intercompany transactions and balances have been eliminated in consolidation. The condensed
consolidated financial statements have been prepared in accordance with generally accepted
accounting principles in the United States of America (GAAP) and the rules and regulations of the
Securities and Exchange Commission (SEC) applicable to interim reports. Accordingly, they do not
include all the information and notes required by GAAP for complete financial statements and should
be read in conjunction with the audited financial statements included in the Companys Annual
Report on Form 10-K (Form 10-K) for the year ended December 31, 2010.

In the opinion of management, the unaudited condensed consolidated financial statements
contain all adjustments, consisting of adjustments of a normal recurring nature, necessary to
present fairly the financial position, results of operations and cash flows for the periods
presented. The results of operations for the three months ended March 31, 2011 are not necessarily
indicative of the results to be expected for the full year.

The preparation of financial statements in accordance with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements. Actual
results may differ from those estimates and assumptions.

All amounts presented in the accompanying footnotes are presented in thousands, except for per
share information.

Some prior period amounts presented in the accompanying footnotes have been reclassified to
conform to current year presentation.

The Company has evaluated subsequent events from the date of the condensed consolidated
balance sheet through the date of the filing of this Form 10-Q. During this period, no material
recognizable subsequent events were identified. See Note 15 for a description of subsequent events
that are not significant to the Companys financial statements.

Recent Accounting Pronouncements

In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements  a
consensus of the FASB Emerging Issues Task Force, to provide amendments to the criteria in
Subtopic 609-24 of the Codification for separating consideration into multiple-deliverable revenue
arrangements. ASU 2009-13 establishes a selling price hierarchy for determining the selling price
of each specific deliverable, which includes vendor-specific objective evidence (VSOE) if
available, third party evidence if VSOE is not available or estimated selling price if neither VSOE
nor third party evidence is available. ASU 2009-13 also eliminates the residual method for
allocating revenue between the elements of an arrangement and requires that arrangement
consideration be allocated at the inception of the arrangement to all deliverables using the
relative selling price method, which allocates any discount in the arrangement proportionally to
each deliverable on the basis of each deliverables selling price. ASU 2009-13 expands the
disclosure requirements regarding a vendors multiple-deliverable revenue arrangements. ASU 2009-13
was effective prospectively for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010, with early adoption permitted. This standard became
effective for the Company in January 2011 and impacted the timing of revenue recognition and the
allocation of discounts for multiple element sales. ASU 2009-13 requires the discount on a
multiple element sale to be allocated proportionally to each deliverable on the basis of each
deliverables selling price, which accelerated the timing of recognizing revenue on certain
elements; however, the timing impact to revenue was not significant. In addition, the gross
profit margins of each revenue category shifted among revenue categories; however, overall gross
profit margin was not significantly impacted in the Companys condensed consolidated financial statements.
The impact of adoption resulted in a positive impact on the gross profit margin of printers and
other products and a negative impact on materials and services gross profit margins.

In October 2009, the FASB issued ASU 2009-14, Certain Revenue Arrangements That Include
Software Elements  a consensus of the FASB Emerging Issues Task Force. ASU 2009-14 removes
tangible products containing software components and nonsoftware components that function together
to deliver the tangible products essential functionality from the scope of the software revenue
guidance in Subtopic 985-605 of the Codification. Additionally, ASU 2009-14 provides guidance on
how a vendor should allocate arrangement consideration to deliverables in an arrangement that
includes both tangible products and software that is not essential to the products functionality.
ASU 2009-14 requires the same expanded disclosures that are included within ASU 2009-13. ASU
2009-14 was effective for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15,
2010, with early adoption permitted. This standard became effective for the Company in
January 2011 and did not have a significant impact on the Companys condensed consolidated financial
statements.

In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma
Information for Business Combinations. ASU 2010-29 amends and clarifies the acquisition date to
be used for reporting pro forma financial disclosures when comparative financial statements are
presented. In addition it requires a description of the nature of and amount of any material,
non-recurring pro forma adjustments directly attributable to the business combination. ASU 2010-29
was effective prospectively for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after December 15, 2010,
with early adoption permitted. The standard became effective for the Company in January 2011 and
did not have an impact on the Companys financial position or results of operations as it only
amends required disclosures.

No other new accounting pronouncements issued or effective during 2011 have had or are
expected to have an impact on the Companys consolidated financial statements.

(2) Acquisitions

On January 5, 2011, the Company acquired the assets of National RP Support, Inc. (NRPS).
NRPS is a provider of customer support services and a factory-authorized source of parts,
maintenance, and other services for 3D Systems equipment. NRPS operations have been integrated
into the Company and included in services revenue. The fair value of the consideration paid for
this acquisition was $5,550, all of which was paid in cash, and was allocated to the assets
purchased and liabilities assumed based on their estimated fair values as of the acquisition date,
and is
included in the table below which summarizes all acquisitions.

On February 21, 2011, the Company acquired the shares of Quickparts.com, Inc. (Quickparts).
Quickparts, located in Atlanta, Georgia, is a custom parts services company. Quickparts operations
have been integrated into the Company and included in services revenue. The fair value of the
consideration paid for this acquisition, net of cash acquired, was $22,775 and was allocated to the
assets purchased and liabilities assumed based on the estimated fair values at the date of
acquisition, and is included in the table below which summarizes all acquisitions. Of the consideration,
the Company paid $15,575 from its cash at closing and the remaining $7,200 is due in July 2011 and
is recorded as a liability in the Companys financial statements.

On March 8, 2011, the Company acquired the assets of Accelerated Technologies, Inc (ATI).
ATI is a custom parts services company. ATI operations have been integrated into the Company and
included in services revenue. The fair value of the consideration paid for this acquisition, net
of cash acquired, was $1,000, all of which was paid in cash, and was allocated to the assets
purchased and liabilities assumed based on their estimated fair values as of the acquisition date,
and is
included in the table below which summarizes all acquisitions.

The amounts related to the acquisitions of these businesses were allocated to the assets
acquired and the liabilities assumed and included in the Companys condensed consolidated balance
sheet at March 31, 2011 as follows:

(in thousands)

2011

Fixed assets

$

735

Intangible assets

29,583

Other assets, net of cash acquired and liabilities assumed

(993

)

Net assets acquired

$

29,325

These acquisitions were not significant, either individually or in aggregate; therefore, no
pro forma financial information is provided for these acquisitions.

Subsequent acquisitions

In April, the Company acquired Sycode, a software development company based in Goa, India that
specializes in providing plug-ins for all commercially available Computer Aided Design (CAD)
packages. Future revenue from this acquisition will be reported in printers and other products
revenue. The Sycode acquisition is not significant to the Companys financial statements.

In April, the Company acquired Print3D Corporation, a startup company that develops custom
parts services for CAD users through advanced desktop tools that integrate directly into their
design environment. Future revenue from this acquisition will be reported in services revenue. The
Print3D acquisition is not significant to the Companys financial statements.

Components of inventories, net at March 31, 2011 and December 31, 2010 were as follows:

(in thousands)

2011

2010

Raw materials

$

7,634

$

6,742

Work in process

261

195

Finished goods and parts

20,784

19,079

Total cost

28,679

26,016

Less: reserves

(2,106

)

(2,205

)

Inventories, net

$

26,573

$

23,811

(4) Property and Equipment

In March 2011, the Company exercised the option to purchase an 11-acre parcel of land adjacent
to the headquarters facility. The Company paid $389 for this land which was originally included in
the lease agreement covering the building and property and accounted for as a capital lease.

Property and equipment at March 31, 2011 and December 31, 2010 were as follows:

Useful Life

(in thousands)

2011

2010

(in years)

Land

$

541

$

152

N/A

Building

9,204

9,574

25

Machinery and equipment

30,338

30,460

3-7

Capitalized software  ERP

3,146

3,143

5

Office furniture and equipment

3,077

3,051

5

Leasehold improvements

5,622

5,504

Life of lease (1)

Rental equipment

536

506

5

Construction in progress

1,520

980

N/A

Total property and equipment

53,984

53,370

Less: Accumulated depreciation and amortization

(26,913

)

(25,701

)

Total property and equipment, net

$

27,071

$

27,669

(1)

Leasehold improvements are amortized on a straight-line basis over the shorter of (i)
their estimated useful lives and (ii) the estimated or contractual life of the related lease.

Depreciation and amortization expense on property and equipment for the three months ended
March 31, 2011 and 2010 were $1,569 and $1,288, respectively.

(5) Intangible Assets

Intangible assets other than goodwill at March 31, 2011 and December 31, 2010 were as follows:

2011

2010

Accumulated

Accumulated

(in thousands)

Cost

Amortization

Net

Cost

Amortization

Net

Licenses

$

5,875

$

(5,875

)

$



$

5,875

$

(5,875

)

$



Patent costs

16,373

(13,705

)

2,668

16,296

(13,632

)

2,664

Acquired technology

11,156

(10,396

)

760

11,064

(10,304

)

760

Internally developed software

14,714

(9,040

)

5,674

9,984

(8,936

)

1,048

Customer relationships

15,895

(542

)

15,353

10,253

(300

)

9,953

Non-compete agreements

7,090

(1,083

)

6,007

3,875

(840

)

3,035

Trade names

3,207

(87

)

3,120

883

(68

)

815

Other

1,209

(1,201

)

8

974

(974

)



Total

$

75,519

$

(41,929

)

$

33,590

$

59,204

$

(40,929

)

$

18,275

For the three months ended March 31, 2011 and 2010, the Company capitalized $66 and $118,
respectively, of costs incurred to acquire, develop and extend patents in the United States and
various other countries.

Accrued liabilities at March 31, 2011 and December 31, 2010 were as follows:

(in thousands)

2011

2010

Compensation and benefits

$

8,171

$

6,786

Vendor accruals

3,589

2,259

Accrued professional fees

294

451

Accrued taxes

2,854

3,102

Royalties payable

428

439

Accrued interest

45

48

Non-contractual obligation to repurchase



27

Contractual obligation due to acquisition

11,556

4,356

Accrued other

502

501

Total

$

27,439

$

17,969

Other liabilities at March 31, 2011 and December 31, 2010 were as follows:

(in thousands)

2011

2010

Defined benefit pension obligation

$

3,592

$

3,394

Long-term tax liability

751

756

Earnouts related to acquisitions

2,660

2,660

Other long-term liabilities

3,415

3,151

Total

$

10,418

$

9,961

(7) Hedging Activities and Financial Instruments

The Company conducts business in various countries using both the functional currencies of
those countries and other currencies to effect cross border transactions. As a result, the Company
is subject to the risk that fluctuations in foreign exchange rates between the dates that those
transactions are entered into and their respective settlement dates will result in a foreign
exchange gain or loss. When practicable, the Company endeavors to match assets and liabilities in
the same currency on its balance sheet and those of its subsidiaries in order to reduce these
risks. When appropriate, the Company enters into foreign currency contracts to hedge exposures
arising from those transactions. The Company has elected not to prepare and maintain the
documentation to qualify for hedge accounting treatment under ASC 815, Derivatives and Hedging,
and therefore, all gains and losses (realized or unrealized) are recognized in Interest and other
expense, net in the condensed consolidated statements of operations and comprehensive
income. Depending on their fair value at the end of the reporting period, derivatives are recorded
either in prepaid expenses and other current assets or in accrued liabilities on the condensed
consolidated balance sheets.

At March 31, 2011, these contracts included contracts for the sale of currencies other than
the U.S. dollar. There were no foreign currency contracts outstanding at December 31, 2010. The
dollar equivalent of the foreign currency contracts and the related fair values as of March 31,
2011 and December 31, 2010 were as follows:

Foreign Currency

Purchase Contracts

(in thousands)

2011

2010

Notional amount

$

51

$



Fair value

51



Net unrealized gain (loss)

$



$



The foreign currency contracts outstanding at March 31, 2011 expired April 1, 2011.

The total impact of foreign currency transactions on the condensed consolidated statements of
operations and comprehensive income for the three months ended March 31, 2011 reflected a gain of $555 compared to losses
of $325 for the three months ended March 31, 2010.

The Company records stock-based compensation expense in selling, general and administrative
expenses in the condensed consolidated statements of operations and
comprehensive income. Stock-based compensation expense
for the three months ended March 31, 2011 and 2010 was as follows:

Three Months

Ended

March 31,

(in thousands)

2011

2010

Restricted stock awards

$

387

$

267

The number of shares of restricted common stock awarded and the weighted average fair
value per share during the three-month periods ended March 31, 2011 and 2010 were as follows:

Three Months Ended March 31,

2011

2010

Weighted Average

Weighted Average

(in thousands, except per share amounts)

Shares Awarded

Fair Value

Shares Awarded

Fair Value

Restricted stock awards:

Granted under the 2004 Incentive Stock Plan

46

$

31.64

10

$

12.24

Granted under the 2004 Incentive Stock
Plan for Non-Employee Directors









Total restricted stock awards

46

$

31.64

10

$

12.24

In the quarter ended March 31, 2011, the Company granted restricted stock awards covering 46
shares of common stock pursuant to the Companys 2004 Incentive Stock Plan. Of the 46 shares
granted in the first quarter of 2011, 5 shares were awarded to executive officers of the Company.
Additionally, of the 46 shares granted in the first quarter of 2011, 41 remained subject to
acceptance at March 31, 2011. In the first quarter of 2010, the Company granted restricted stock
awards covering 10 shares of common stock pursuant to the Companys 2004 Incentive Stock Plan; no
shares were awarded to executive officers of the Company.

In the first quarters of 2011 and 2010, the Company did not issue any shares of common stock
pursuant to the Companys 2004 Restricted Stock Plan for Non-Employee Directors; therefore, there
was no stock compensation expense for Non-Employee Directors the first quarters of 2011 or 2010.

(9) International Retirement Plan

The following table shows the components of net periodic benefit costs and other amounts
recognized in the condensed consolidated statements of operations for the three months ended March
31, 2011 and 2010:

Three Months Ended

March 31.

(in thousands)

2011

2010

Service cost

$

14

$

23

Interest cost

16

22

Total

$

30

$

45

(10) Earnings Per Share

The Company presents basic and diluted earnings per share (EPS) amounts. Basic EPS is
calculated by dividing net income available to common stockholders by the weighted average number
of common shares outstanding during the applicable period. Diluted EPS is calculated by dividing
net income by the weighted average number of common and common equivalent shares outstanding during
the applicable period. The following table reconciles basic weighted average outstanding shares to
diluted weighted average outstanding shares at March 31, 2011 and 2010:

The average outstanding diluted shares calculation excludes options with an exercise price that
exceeds the average market price of shares during the period, since the effect of their inclusion would have been
anti-dilutive resulting in an increase to the net earnings per share.

For the three months ended March 31, 2011, average common shares for basic and diluted
earnings per share were 23,793 and 24,321, respectively, and basic and diluted earnings per share
were $0.29 and $0.28, respectively. For the three months ended March 31, 2010, average common
shares for basic and diluted earnings per share were 22,844 and 23,122, respectively, and basic and
diluted earnings per share were $0.09.

(11) Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which
requires an entity to maximize the use of observable inputs that may be used to measure fair value:

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities; or

Level 3 - Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.

For the Company, the above standard applies to cash equivalents and foreign exchange
contracts. The Company utilizes the market approach to measure fair value for its financial assets
and liabilities. The market approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities.

Assets and liabilities measured at fair value on a recurring basis are summarized below:

Fair Value Measurements as of March 31, 2011

(in thousands)

Level 1

Level 2

Level 3

Total

Description

Cash equivalents (1)

$

40,214

$



$



$

40,214

Currency derivative contracts(2)

51





51

Total

$

40,265

$



$



$

40,265

(1)

Cash equivalents include funds held
in money market instruments and are
reported at their current carrying
value which approximates fair value
due to the short-term nature of
these instruments and are included
in cash and cash equivalents in the
consolidated balance sheet.

(2)

Unrealized gains or losses on
derivatives are recorded in
Interest and other expense, net in
the condensed consolidated statement
of operations and comprehensive income at each measurement
date. See Note 7, Hedging
Activities and Financial
Instruments.

The Company did not have any transfers of assets and liabilities between Level 1 and Level 2
of the fair value measurement hierarchy during the three months ended March 31, 2011.

In addition to the financial assets and liabilities included in the above table, certain of
our non-financial assets and liabilities are to be initially measured at fair value on a
non-recurring basis. This includes items such as non-financial assets and liabilities initially
measured at fair value in a business combination (but not measured at fair value in subsequent
periods) and non-financial, long-lived assets measured at fair value for an impairment assessment.
In general, non-financial assets and liabilities including goodwill, other intangible assets and
property and equipment are measured at fair value when there is an indication of impairment and are
recorded at
fair value only when impairment is recognized. The Company has not recorded any impairments
related to such assets and has had no other significant non-financial assets or non-financial
liabilities requiring adjustments or write-downs to fair value as of March 31, 2011 or December 31,
2010.

The Companys effective tax rates were 11.5% and 10.5% for the three months ended March 31,
2011 and March 31, 2010, respectively.

Tax years 2007 to 2010 remain subject to examination by the U.S. Internal Revenue Service. The
Company has utilized a portion of its U.S. loss carryforwards covering the years 1997 through 2003.
Should the Company utilize any of its remaining losses, which date back to 2003, these would be
subject to examination. The Company files income tax returns (which are open to examination
beginning in the year shown in parentheses) in France (2004), Germany (2006), Japan (2005), Italy
(2005), Switzerland (2005) and the United Kingdom (2007).

In conjunction with the Companys ongoing review of its actual results and anticipated future
earnings, the Company assesses the possibility of releasing the valuation allowance remaining on
its U.S. net deferred tax assets. Based upon this ongoing assessment, a release of the valuation
allowance may occur during 2011 or subsequent years. The required accounting for the release could
involve significant tax amounts and it would impact earnings in the quarter in which it was deemed
appropriate to release the reserve.

(13) Segment Information

The Company operates in one reportable business segment. The Company conducts its business
through subsidiaries in the United States, a subsidiary in Switzerland that operates a research and
production facility, and sales and services offices, including custom parts services, operated by
subsidiaries in Europe (France, Germany, the United Kingdom and
Italy) and in Asia-Pacific (Japan). The Company has historically disclosed summarized financial information for the
geographic areas of operations as if they were segments in accordance with ASC 280, Segment
Reporting.

Summarized financial information concerning the Companys geographical operations is shown in
the following tables:

Three Months Ended

March 31,

(in thousands)

2011

2010

Revenue from unaffiliated customers:

United States

$

22,876

$

14,145

Germany

6,736

5,507

Other Europe

11,379

7,362

Asia Pacific

6,905

4,613

Total

$

47,896

$

31,627

The Companys revenue from unaffiliated customers by type were as follows:

All revenue between geographic areas is recorded at prices that provide for an allocation of
profit (loss) between entities. Income from operations and assets for each geographic area were as
follows:

Three Months Ended

March 31,

(in thousands)

2011

2010

Income from operations:

United States

$

3,537

$

852

Germany

411

179

Other Europe

1,512

311

Asia Pacific

1,976

1,270

Subtotal

7,436

2,612

Inter-segment elimination

(25

)

46

Total

$

7,411

$

2,658

March 31,

December 31,

(in thousands)

2011

2010

Assets:

United States

$

187,381

$

113,249

Germany

15,771

17,231

Other Europe

64,491

67,790

Asia Pacific

11,860

10,530

Total

$

279,503

$

208,800

(14) Commitments and Contingencies

The Company leases office space and certain furniture and fixtures under various
non-cancelable operating leases. Rent expense under operating leases was $621 and $403 for the
three months ended March 31, 2011 and 2010, respectively.

As of March 31, 2011, the Company has supply commitments with third party assemblers for
printer assembly for the second quarter of 2011 that total $6,727.

For certain of our recent acquisitions, the Company is obligated for the payment of deferred
purchase price totaling $10,919, all of which is due in 2011, based upon the exchange rate at the
date of acquisition. Certain of these acquisitions also contain earnout provisions under which the
sellers of the acquired businesses can earn additional amounts. The total liabilities recorded for
these earnouts as of March 31, 2011 was $3,297. See Note 2 for details of acquisitions and related
commitments.

Litigation

On March 14, 2008, DSM Desotech Inc. filed a complaint, in an action titled DSM Desotech Inc.
v. 3D Systems Corporation and 3D Systems, Inc. in the United States District Court for the Northern
District of Illinois (Eastern Division), asserting that the Company engaged in anticompetitive
behavior with respect to resins used in large-frame stereolithography machines. The complaint
further asserted that the Company is infringing on two of DSM Desotechs patents relating to
stereolithography machines.

Following a decision of the Court on the Companys motion to dismiss the non-patent causes of
the action, DSM Desotech filed a second amended complaint on March 2, 2009 in which it reasserted
causes of action previously dismissed by the Court. The Company filed an answer to the second
amended complaint on March 19, 2009 in which, among other things, it denied the material
allegations of the second amended complaint. On July 20, 2010, the Court issued a decision
relating to the construction of the claims of the patents-in-suit following the Markman hearing
held on September 16, 2009. In that decision, the Court generally adopted the claim constructions
proposed by the Company.

DSM filed a third amended complaint on November 30, 2010 in which it asserted additional
causes of action, and the Company filed an answer, in which, among other things, it denied the
material allegations of the third amended complaint. Fact discovery regarding the claims pending
in this case concluded January 31, 2011.

The Company understands that DSM Desotech estimates the damages associated with its claims to
be in excess of $40,000. The Company intends to continue vigorously contesting all the claims
asserted by DSM Desotech.

The Company has been pursuing patent infringement litigation against EnvisionTec, Inc. and
certain of its related companies since 2005. In this litigation, the Company asserted that
EnvisionTec infringed the Companys patents covering various three-dimensional solid imaging
products and methods for creating physical three-dimensional models of an object and has sought
injunctive relief and damages. EnvisionTecs Perfactory machine and Vanquish machine (the Vanquish
is now marketed as the PerfactoryXede and PerfactoryXtreme) are the two products accused of patent
infringement.

A jury trial was held in September 2010. Following that trial, the jury issued a verdict to
the effect that EnvisionTecs Vanquish machines infringe one of the Companys patents, and the
Court entered judgment on that verdict on October 7, 2010. On March 10, 2011, the Court issued a
second amended judgment to the effect that EnvisionTecs Perfactory and Vanquish machines infringe
one patent and its Vanquish machines infringe a second patent.

On March 17, 2011, the Company filed a motion for a permanent injunction seeking to enjoin
EnvisionTec from further infringement of the second patent by the Vanquish machines. The Company also intends to pursue claims for damages against
EnvisionTec.

On July 14, 2010, MSK K.K., a Japanese company, filed a complaint against the Companys
Japanese subsidiary in the Tokyo District Court asserting, among other things, that the Companys
subsidiary failed to satisfy certain alleged performance guarantees associated with the use of
certain materials in two printers purchased from the Company in 2007.

The plaintiff is seeking damages in excess of $1,600. The Company intends to vigorously
contest the claims asserted by MSK K.K.

The Company is also involved in various other legal matters incidental to its business. The
Companys management believes, after consulting with counsel, that the disposition of these other
matters will not have a material effect on the Companys consolidated results of operations or
consolidated financial position.

(15) Subsequent Events

In connection with the public common stock offering in March 2011, the underwriters fully
exercised their over-allotment option to purchase an additional 195 shares in April 2011. The
exercise of the over-allotment resulted in $8,173 of net cash proceeds for the Company.

In April 2011, the Company acquired Sycode. Future revenue from this acquisition will be
reported in printers and other products revenue. The Sycode acquisition is not significant to the
Companys financial statements. See Note 2.

In April 2011, the Company acquired Print3D Corporation. Future revenue from this acquisition
will be reported in services revenue. The Print3D acquisition is not significant to the Companys
financial statements. See Note 2.

In April 2011, the Companys Board of Directors declared a two-for-one split of the Companys
common stock. The company expects that the stock split will increase trading liquidity and attract a broader investor base. On May 18, 2011, each stockholder of
record at the close of business on May 9, 2011 will receive one additional share for every
outstanding share held on the record date. Trading is expected to begin on a split-adjusted basis
on May 19, 2011.

Managements Discussion and Analysis of Financial Condition and Results of Operations.

This discussion should be read in conjunction with the unaudited condensed consolidated
financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q
(Form 10-Q).

We are subject to a number of risks and uncertainties that may affect our future performance
that are discussed in greater detail in the sections entitled Forward-Looking Statements and
Cautionary Statements and Risk Factors at the end of this Item 2 and that are discussed or
referred to in Item 1A of Part II of this Form 10-Q.

Business Overview

We are a global provider of three-dimensional (3D) content-to-print solutions including 3D
personal, professional and production 3D printers, print materials and custom parts services. We
design, develop, manufacture, market and service a comprehensive portfolio of 3D printing, rapid
manufacturing, and prototyping printers and related products, print materials and services that
enable complex three-dimensional objects to be produced directly from 3D digital data without
tooling, greatly reducing the time and cost required to produce prototypes or customized production
parts. Through our custom parts services, which consists of our 3Dproparts and Quickparts® brands,
we also supply a wide variety of custom-made plastic and metal parts as well as assembly and
production jigs, fixtures and casting patterns in different finishes and colors through a growing
network of custom parts service locations.

Our consolidated revenue is derived primarily from the sale of our printers, the sale of the
related print materials used by the printers to produce solid objects and the provision of services
and custom parts to our customers.

Recent Developments

In 2011, we have continued to execute on our strategic initiatives, including growing our
custom parts services, through additional acquisitions and accelerating personal and professional
3D printer penetration by expanding our distribution channel of
reseller partners. We began to execute on our initiative to build 3D consumer content products and services.

In January 2011, we acquired the assets of National RP Support, Inc (NRPS), a provider of
customer support services and a factory-authorized source of parts, maintenance, and other services
for 3D Systems equipment.

As part of expanding our custom parts services business, we acquired the shares of
Quickparts.com, Inc (Quickparts) in February 2011 and the assets of Accelerated Technologies, Inc
(ATI) in March 2011. Quickparts and ATI are custom
parts services providers.

In February 2011, we introduced a new model of our ProJet DP 3000 3D printer, designed for
dental applications and introduced upgrade kits for existing ProJet DP 3000 owners. The new
ProJet DP 3000 3D printer has an expanded build area, increased productivity and email notification
capabilities. In February, we also introduced Plus upgrades for our ProJet HD 3000 and ProJet
CPX 3000 printers, which enables current customers to leverage their existing investment.

In March 2011, we filed a shelf registration statement, under which we may issue, from time to
time, up to $175.0 million of common stock, preferred stock, debt securities or warrants for debt
or equity securities or units of such securities, in one or more offerings. On March 16, 2011 we
completed an offering of 1.3 million shares of common stock. The offering raised approximately $54.0
million of cash proceeds, net of offering expenses, in the first quarter of 2011. In April 2011,
the underwriters of the public equity offering fully exercised the over-allotment option to
purchase an additional 0.2 million shares. See Note 15 for details related to the exercise of the
over-allotment option.

In April 2011, we acquired Sycode, a software development company, based in Goa, India, that
specializes in providing plug-ins for all commercially available CAD packages. We acquired Sycode
as a step towards building 3D professional and consumer content tools and our
India expansion plan.

In April, we also acquired Print3D, a startup company with desktop tools and utilities that
provide custom parts services including instant quotes and orders directly from customers
computers.

In April 2011, the Companys Board of Directors declared a two-for-one split of the Companys
common stock. The company expects that the stock split will increase trading liquidity and attract a broader investor base. On May 18, 2011, each stockholder of
record at the close of business on May 9, 2011 will receive one additional share for every
outstanding share held on the record date. Trading is expected to begin on a split-adjusted basis
on May 19, 2011.

Our operating activities generated $0.3 million of cash during the first quarter of 2011,
which is discussed in further detail below. We used $22.7 million to fund our strategic investing
activities, including acquisition of businesses. Financing activities during the first quarter of
2011 provided $55.5 million of cash, including $54.0 million from our common stock offering. In
total, unrestricted cash increased $33.5 million in the first quarter of 2011, resulting in a
balance of $70.8 million at March 31, 2011, compared to $37.3 million at December 31, 2010.

During the first quarter of 2011 we reported improved revenue and profit results as compared
to the first quarter of 2010 as our worldwide business continued to expand. Revenue for the first
quarter of 2011 increased by 51.4% over the first quarter of 2010. This increase in revenue was led
by a $4.8 million, or 54.1%, increase in sales of printers and other products together with a $2.0
million, or 14.6%, increase in print material sales and a $9.5 million, or 103.2%, increase in
services revenue year-over-year. Higher revenue coupled with a focus on continued cost containment,
enabled us to achieve net income of $6.8 million for the first quarter of 2011, compared to net
income of $2.0 million for the same period in 2010.

Materials sales for the first quarter of 2011 rose by $2.0 million from the first quarter of
2010 as revenue from materials was favorably impacted by continued expansion of printers installed
over past periods. In addition, production printer sales are typically accompanied by significant
initial print materials purchases to charge up new systems and commence production. Materials
revenue increased compared to the first quarter of 2010 notwithstanding the fact that materials
consumed by 3Dproparts were not included in our materials revenue line.

Revenue
from services increased by $9.6 million to $18.8 million in the first quarter of 2011
from $9.2 million in the same quarter in 2010. The increase in services revenue reflects revenue
from our custom parts services and increased revenue from printer service components, both from
organic growth and acquisitions. Service revenue from custom parts services was $10.3 million, or
54.8% of total service revenue for the first quarter of 2011.

For the first quarter of 2011, healthcare solutions revenue made up 13%, or $6.2 million, of
our total revenue compared to 13%, or $4.1 million, in the first quarter of 2010. Healthcare
solutions revenue includes sales of printers, print materials, and services for hearing aid,
dental, medical device and other health-related applications. Although printer sales into these
marketplaces can fluctuate from period to period due to timing, 64% of revenue from healthcare
solutions was from recurring revenue in the first quarter of 2011 compared to 69% in the first
quarter of 2010.

Our higher gross profit in the first quarter of 2011 improved primarily from our higher level
of revenue coupled with continued cost containment. Our gross profit margin increased to 48.4% in
the first quarter of 2011 from 45.3% in the first quarter of 2010 due to product mix and
improvements in our cost structure, notwithstanding the increased unit sales of lower margin
printers.

Our total operating expenses increased by $4.1 million in the first quarter of 2011 to $15.8
million from $11.7 million in the 2010 quarter. The increase reflected higher selling, general and
administrative expenses primarily due to higher commissions, staffing from our acquisitions and
increased legal expenses associated with litigation. We expect to continue to manage expenses and
drive down our costs where possible without impairing our ability to operate and service our
customers. We expect our selling, general and administrative expenses for the remainder of 2011 to
be in the range of $40.0 to $45.0 million, and our research and development expenses to be in the
range of $9.0 million to $11.0 million.

Our operating income for the first quarter of 2011 increased to $7.4 million from $2.7 million
in the 2010 quarter. This improvement in operating income improved from higher revenues and gross
profit, partially offset by higher operating expense, as discussed below.

Table 1 sets forth our change in revenue by class of product and service for the first quarter
of 2011 compared to the first quarter of 2010:

Table 1

Printers and

Other

(Dollars in thousands)

Products

Print Materials

Services

Totals

Revenue at March 31, 2010

$

8,783

27.8

%

$

13,614

43.0

%

$

9,230

29.2

%

$

31,627

100

%

Change in revenue:

Volume

Core products and services

(606

)

(6.9

)

1,788

13.1

8,848

95.9

10,030

31.7

New products and services

5,130

58.4

93

0.7

644

7.0

5,867

18.6

Price/Mix

2

0.0

(90

)

(0.7

)





(88

)

(0.3

)

Foreign currency translation

226

2.6

204

1.5

30

0.3

460

1.4

Net change

4,752

54.1

1,995

14.6

9,522

103.2

16,269

51.4

Revenue at March 31, 2011

$

13,535

28.3

%

$

15,609

32.5

%

$

18,752

39.2

%

$

47,896

100.0

%

We earn revenues from the sale of printers and other products, print materials and services.
On a consolidated basis, revenue for the first quarter of 2011 increased by $16.3 million, or
51.4%, compared to the first quarter of 2010 as a result of improvements in each revenue category.

The increase in revenue from printers and other products that is due to volume for the first
quarter of 2011 compared to the same quarter of 2010 was the result of higher sales of all types of
printers, which consisted of:



Production printers, which represented $8.4 million, or 62%, of total printers revenue
for the first quarter of 2011, compared to $4.0 million, or 46% for the first quarter of
2010; and



Personal and professional printers, which made up the remaining $5.1 million, or 38%,
in the first quarter of 2011, compared to $4.7 million, or 54%, for the first quarter of
2010.

Due to the relatively high list price of certain printers, our customers purchasing decisions
may have a long lead time; combined with the overall low unit volume of printer sales in any
particular period, the acceleration or delay of orders and shipments of a small number of printers
from one period to another can significantly affect revenue reported for our printer sales for the
period involved. Revenue reported for printers sales in any particular period is also affected by
revenue recognition rules prescribed by generally accepted accounting principles.

Revenue from print materials was also helped by the improvement in production printers sales,
which are typically accompanied by significant initial print materials purchases to charge up new
printers and commence production, and by the continued expansion of printers installed over past
periods. Sales of integrated materials represented 50% of total materials revenue in the first
quarter of 2011 compared to 32% in the first quarter of 2010. Print materials revenue increased
compared to the first quarter of 2010 notwithstanding that
$0.2 million of
materials sold in the 2010 quarter to customers which were
subsequently acquired were
not included in our materials revenue for 2011.

The increase in services revenue reflects revenue from our custom parts services and increased
revenue from printer service components, both from organic growth and acquisitions. Service
revenue from custom parts services was $10.3 million, or 54.8% of total service revenue for the
first quarter of 2011.

At March 31, 2011 our backlog was $7.9 million, compared to backlogs of $7.6 million at
December 31, 2010 and $2.8 million at March 31, 2010. Although production and delivery of our
printers is generally not characterized by long lead times, the higher backlog at March 31, 2011
includes an order received in the third quarter of 2010 for multiple production printers, which
have been partially delivered, and includes additional production printers for future delivery.
Additionally, custom parts services lead time and backlog depends on whether orders are for rapid
prototyping or longer-range production runs. The backlog at March 31, 2011 includes $4.3 million
of custom parts services orders.

In addition to changes in sales volumes, there are two other primary drivers of changes in
revenues from one period to another: the combined effect of changes in product mix and average
selling prices, sometimes referred to as price and mix effects, and the impact of fluctuations in
foreign currencies.

As used in this Managements Discussion and Analysis, the price and mix effects relate to
changes in revenue that are not able to be specifically related to changes in unit volume. Among
these changes are changes in the product mix of our materials and our systems
as the trend toward smaller, lower-priced printers has continued and the influence of new
printers and print materials on our operating results has grown.

Each geographic region contributed to our higher level of revenue in first quarter of 2011.
Table 2 sets forth the change in revenue by geographic area for the first quarter of 2011 compared
to the first quarter of 2010:

Table 2

(Dollars in thousands)

U.S.

Europe

Asia-Pacific

Totals

Revenue at March 31, 2010

$

14,145

44.7

%

$

12,869

40.7

%

$

4,613

14.6

%

$

31,627

100

%

Change in revenue:

Volume

9,321

65.9

4,968

38.6

1,606

34.8

15,895

50.3

Price/Mix

(590

)

(4.2

)

109

0.8

394

8.5

(87

)

(0.3

)

Foreign currency translation





169

1.3

292

6.3

461

1.4

Net change

8,731

61.7

5,246

40.7

2,292

49.6

16,269

51.4

Revenue at March 31, 2011

$

22,876

47.8

%

$

18,115

37.8

%

$

6,905

14.4

%

$

47,896

100

%

Revenue
from U.S. operations increased by $8.8 million, or 61.7%, to $22.9 million in 2011
from $14.1 million in the first quarter of 2010. The increase was due to higher volume, partially
offset by the unfavorable combined effect of price and mix.

Revenue from non-U.S. operations at March 31, 2011 increased by $7.5 million, or 43.1%, to
$25.0 million from $17.5 million at March 31, 2010. Revenue from non-U.S. operations as a percent
of total revenue was 52.2% and 55.3%, respectively, at March 31, 2011 and 2010. The increase in
non-U.S. revenue, excluding the effect of foreign currency translation, was 40.5% in the first
quarter of 2011 compared to 31.5% in the first quarter of 2010.

Revenue from European operations increased by $5.2 million, or 40.7%, to $18.1 million from
$12.9 million in the prior year period. This increase was due to a $5.0 million increase in volume
combined with a $0.1 million favorable combined effect of price and mix and a $0.2 million
favorable impact of foreign currency translation.

Revenue from Asia-Pacific operations increased by $2.3 million, or 49.6%, to $6.9 million from
$4.6 million in the prior year period due primarily to the favorable $1.6 million increase in
volume combined with a $0.4 million favorable combined effect of price and mix and a $0.3 favorable
impact of foreign currency translation.

Gross profit and gross profit margins

Table 3 sets forth gross profit and gross profit margin for our products and services for the
first quarters of 2011 and 2010:

Table 3

Three Months Ended March 31,

2011

2010

Gross

Gross

Gross

Profit

Gross

Profit

(Dollars in thousands)

Profit

Margin

Profit

Margin

Printers and other products

$

5,493

40.6

%

$

3,142

35.8

%

Print materials

9,900

63.4

8,251

60.6

Services

7,804

41.6

2,928

31.7

Total

$

23,197

48.4

%

$

14,321

45.3

%

On a consolidated basis, gross profit for the first quarter of 2011 increased by $8.9 million
to $23.2 million from $14.3 million in the first quarter of 2010, primarily as a result of higher
sales from all revenue categories and helped by an increase in our gross profit margin.

Consolidated gross profit margin in the first quarter of 2011 increased by 3.1 percentage
points to 48.4% of revenue from 45.3% of revenue for the 2010 quarter. The higher gross profit
margin reflected improved overhead absorption due to higher sales and continued cost containment.
The 2011 gross profit margin was adversely affected by approximately 0.7 percentage points due to
the previously disclosed negative impact on margin of sales of our V-Flash® Desktop
Printer. The negative impact of V-Flash® sales on margin in the 2010 quarter was 2.2 percentage
points.

Printers and other products gross profit for the first quarter of 2011 increased to $5.5
million from $3.1 million for the 2010 quarter, and gross profit margin for printers increased by
4.8 percentage points to 40.6% from 35.8% in the 2010 quarter primarily due to increased sales of
higher margin production printers.

Print materials gross profit for the first quarter of 2011 increased by $1.6 million, or
20.0%, to $9.9 million from $8.3 million for the 2010 quarter, and gross profit margin for print
materials increased by 2.8 percentage points to 63.4% from 60.6% in the 2010 quarter primarily due
to the favorable shift of the mix of materials.

Gross profit for services for the first quarter of 2011 increased by $4.9 million, or 167%, to
$7.8 million from $2.9 million for the 2010 quarter, and gross profit margin for services increased
by 9.9 percentage points to 41.6% from 31.7% in the 2010 quarter. The increase in gross profit was
due primarily to higher levels of revenue associated with our custom parts services. The increase
in gross profit margin for services is primarily due to increased synergies from the integration
of acquired custom parts services coupled with improved gross profit margin on printer services.
Custom parts services had a gross profit margin of 39.2% for the
first quarter of 2011, an improvement from 25.5% in the fourth quarter
of 2010. Printer services has a gross profit margin of 44.5% compared to 42.6%
for the first quarter of 2010.

Operating expenses

As shown in Table 4, total operating expenses increased by $4.1 million, or 35.4%, to $15.8
million in the first quarter of 2011 from $11.7 million in the first quarter of 2010. This
increase was due to higher selling, general and administrative
expenses, and higher research and development expenses, both of which are discussed below.

Table 4

Three Months Ended March 31,

2011

2010

%

%

(Dollars in thousands)

Amount

Revenue

Amount

Revenue

Selling, general and administrative expenses

$

12,964

27.1

%

$

9,158

29.0

%

Research and development expenses

2,822

5.9

2,505

7.9

Total operating expenses

$

15,786

33.0

%

$

11,663

36.9

%

Selling, general and administrative expenses increased by $3.8 million to $13.0 million in the
first quarter of 2011 compared to $9.2 million in the first quarter of 2010, but decreased to 27.1%
of revenue in 2011 compared to 29.0% for 2010. The increase was due primarily to a $1.3 million
increase in compensation costs due to commissions on higher revenues and operating costs of
acquired businesses. Additionally, SG&A expenses were impacted by a $0.7 million increase in legal
expenses, a $0.7 million increase in amortization expense due to acquired intangibles and a $0.5
million increase in bad debt expense.

Research and development expenses increased by $0.3 million, or 12.7%, to $2.8 million in the
first quarter of 2011 from $2.5 million in the first quarter of
2010, principally due to a $0.1
million increase in compensation expense and a $0.1 million increase in R&D materials in
the 2011 quarter.

Income from operations

Our income from operations of $7.4 million for the first quarter of 2011 improved from $2.7
million in 2010. See Gross profit and gross profit margins and Operating expenses above.

The following table sets forth operating income by geographic area for the first quarter of
2011 compared to 2010:

Table 5

Three Months Ended March 31,

(Dollars in thousands)

2011

2010

Income from operations:

United States

$

3,537

$

852

Germany

411

179

Other Europe

1,512

311

Asia Pacific

1,976

1,270

Subtotal

7,436

2,612

Inter-segment elimination

(25

)

46

Total

$

7,411

$

2,658

With respect to the U.S., in 2011 and 2010, the changes in operating income by geographic area
reflected the same factors discussed above in Gross profit and gross profit margins and Operating
expenses.

As most of our operations outside the U.S. are conducted through sales and marketing
subsidiaries, the changes in operating income in our operations outside the U.S. in 2011 and 2010
resulted primarily from changes in transfer pricing which is a function of revenue levels.

Interest and other income (expense), net

Interest and other income (expense), net was $0.3 million of income, net in the first quarter
of 2011 compared with $0.4 million of expense, net in the 2010 quarter. The $0.3 million of
interest and other income (expense), net in the first quarter of 2011 reflected foreign exchange
gain of $0.6 million, partially offset by $0.2 million of interest expense and $0.1 million of
other expense.

Interest
and other income (expense), net was $0.4 million of expense, net in the first quarter of
2010 reflecting other income of $0.1 million and an insignificant amount of interest income that
was more than fully offset by $0.1 million of interest expense and $0.3 million of foreign exchange
losses.

Provision for income taxes

We recorded a $0.9 million provision for income taxes in the first quarter of 2011 and $0.2
million in 2010. Our provision for income taxes in both periods primarily reflects tax expense
associated with income taxes in non-U.S. jurisdictions.

We
utilized U.S. net operating loss carryforwards to eliminate current U.S. income taxes. Absent
the use of these net operating loss carryforwards, income tax expense would have been $2.9 million
and the income tax rate would have been 37.5 percent.

In conjunction with our ongoing review of actual results and anticipated future earnings, we
assess the possibility of releasing the valuation allowance remaining on our U.S. net deferred tax
assets. Based upon this ongoing assessment, a release of the valuation allowance may occur during
2011 or subsequent years. The required accounting for the release could involve significant tax
amounts and it would impact earnings in the quarter in which it was deemed appropriate to release
the reserve.

Net income

Our net income for the first quarter of 2011 increased $4.8 million to $6.8 million compared
to $2.0 million in the first quarter of 2010. The principal reasons for the improvement, which are
discussed in more detail above, were:



the $4.8 million improvement in our operating income as discussed above; and



the $0.7 million improvement in interest and other income (expense), net, and



partially offset by the $0.7 million increase in tax expense.

For the three months ended March 31, 2011, average common shares for basic and diluted
earnings per share were 23.8 million and 24.3 million, respectively, and basic and diluted earnings
per share were $0.29 and $0.28 respectively. For the three months ended March 31, 2010, average
common shares for basic and diluted earnings per shares were
22.8 million and 23.1 million, respectively, and basic and
diluted earnings per share was $0.09.

Financial Condition and Liquidity

Table 6

March 31,

December 31,

(Dollars in thousands)

2011

2010

Cash and cash equivalents

$

70,828

$

37,349

Working capital

76,503

42,475

Total stockholders equity

196,971

133,119

Our unrestricted cash and cash equivalents increased by $33.5 million to $70.8 million at
March 31, 2011 from $37.3 million at December 31, 2010. This increase primarily resulted from $55.5
million of cash from financing activities in the first quarter of 2011, including $54.0 million of
net proceeds of a public offering of common stock. We generated $0.3 million of cash from operating
activities, consisting of $3.6 million of non-cash charges that were included in our net income,
our $6.8 million net income and $10.1
million of cash used by net changes in operating accounts. We used $22.7 million of cash in
investing activities. See Cash flow and Capitalized lease obligations below.

Cash equivalents comprise funds held in money market instruments and are reported at their
current carrying value which approximates fair value due to the short-term nature of these
instruments. We minimize our credit risk by investing primarily in investment grade, liquid
instruments and limit exposure to any one issuer depending on credit quality.

Our net working capital increased by $34.0 million to $76.5 million at March 31, 2011 from
$42.5 million at December 31, 2010, primarily due to the factors discussed below:

Our unrestricted cash and cash equivalents increased by $33.5 million to $70.8 million at
March 31, 2011 from $37.3 million at December 31, 2010. This increase primarily resulted from $55.5
million of cash from financing activities in the first quarter of 2011, including $54.0 million of
net proceeds of a public offering of common stock as discussed above,
partially offset by $22.1 million of cash used for acquisitions.

Accounts receivable, net, increased by $3.5 million to $39.3 million at March 31, 2011 from
$35.8 million at December 31, 2010. Our gross accounts receivable increased by $4.0 million from
December 31, 2010. Our changing business model, which includes custom parts services and
increasing materials, both of which are generally sold on credit terms make up a larger percent of
our total sales. With an increased portion of our sales on credit terms, our days sales
outstanding increased to 74 days at March 31, 2011 from 64 days at December 31, 2010 and accounts
receivable more than 90 days past due increased to 5.9% of gross receivables from 5.0% at December
31, 2010.

Accounts payable decreased by $3.2 million to $23.4 million at March 31, 2011 from $26.6
million at December 31, 2010. The decrease primarily related to the normal timing of our scheduled
expense payments, partially offset by the increase in inventories which is explained below.

Inventories increased by $2.8 million to $26.6 million at March 31, 2011 from $23.8 million at
December 31, 2010. This increase resulted primarily from a $1.8 million increase in finished goods
inventory due to the timing of sales and revenue recognition at quarter-end, which also impacts our
backlog and a $0.9 million increase in raw materials primarily related to the timing of deliveries of raw materials and printer essembly parts.
We maintained $2.1 million of inventory reserves at March 31, 2011 and $2.2 million of
such reserves at December 31, 2010.

The majority of our inventory consists of finished goods, including primarily printers, print
materials and service parts. Inventory also consists of raw materials and spare parts for the
in-house assembly and support service for personal and professional 3D printers. We outsource the
assembly and refurbishment of production printers; therefore, we generally do not hold in inventory
most parts for production printer assembly or refurbishment.

Accrued and other liabilities increased by $9.4 million to $27.4 million at March 31, 2011
from $18.0 million at December 31, 2010. This increase is primarily due to the $7.2 million
deferred purchase price for the acquisition of Quickparts®.

The changes in the first quarter of 2011 that make up the other components of working capital
not discussed above arose in the ordinary course of business.

Differences between the amounts of working capital item changes in the cash flow statement and
the balance sheet changes for the corresponding items are primarily the result of foreign currency
translation adjustments.

We have relied on our unrestricted cash and cash flow from operations in addition to the
proceeds from our common stock offering. However, it is possible that we may need to raise
additional funds to finance our activities beyond the next twelve months or to consummate
significant acquisitions of other businesses, assets, products or technologies. If needed, we may
be able to raise such funds by issuing equity or debt securities to the public or selected
investors, or by borrowing from financial institutions.

Cash flow

Table 7 summarizes the cash provided by or used in operating activities, investing activities
and financing activities, as well as the effect of changes in foreign currency exchange rates on
cash, for the first three months of 2011 and 2010.

For the three months ended March 31, 2011, our operating activities provided $0.3 million of
net cash. This source of cash consisted primarily of net income plus the effects of non-cash items
and changes in working capital, which are described above.

For the three months ended March 31, 2010, our operating activities provided $4.8 million of
net cash. This source of cash consisted of our $2.0 million net income, $1.8 million of non-cash
items included in our net income and $1.0 million of cash provided by net changes in operating
accounts.

Cash flow from investing activities

Net cash used in investing activities in the first three months of 2011 increased to $22.7
million from $3.0 million for the first three months of 2010. This increase was primarily due to
$22.1 million of cash paid for acquisitions.

Cash flow from financing activities

Net cash provided by financing activities increased to $55.5 million for the three months
ended March 31, 2011 compared to $0.2 million in the 2010 period. This increase resulted primarily
from $54.0 million of net proceeds, after deducting issuance costs, of our offering of Common Stock
in March 2011 and from $1.5 million of stock-based compensation proceeds.

On March 3, 2011, we filed a shelf registration statement, under which we may issue, from time
to time, up to $175.0 million of common stock, preferred stock, debt securities or warrants for
debt or equity securities or unites of such securities, in one or more offerings. On March 16,
2011 we completed a secondary offering of 1.3 million shares of common stock. The offering, resulted
in approximately $54.0 million of cash proceeds during the first quarter of 2011. The proceeds
from the offering are for general corporate purposes, including acquisitions. In April 2011, the
underwriters of the public equity offering fully exercised the over-allotment option to purchase an
additional 0.2 million shares. See Note 15 for details related to the exercise of the over-allotment
option.

For certain of our recent acquisitions we are obligated for deferred purchase price payments
totaling $10.9 million, based upon the exchange rate at the date of acquisition for foreign
acquisitions. Certain of these acquisitions also contain earnout provisions under which the
sellers of the acquired businesses can earn additional amounts. The total amount of liabilities
recorded for these earnouts is $3.3 million. See Note 2 for details of acquisitions and related
commitments.

As of March 31, 2011, we have supply commitments for the second quarter of 2011 related to
printer assembly that total $6.7 million.

Off-balance sheet arrangements

We have no off-balance sheet arrangements and do not utilize any structured debt, special
purpose, or similar unconsolidated entities for liquidity or financing purposes.

Capitalized lease obligations

Our principal contractual commitments consist of capitalized lease obligations of $7.9 million
at March 31, 2011. Our capitalized lease obligations decreased from $8.3 million at December 31,
2010 primarily due to scheduled payments of principal on capital lease installments and the
exercise of our option to purchase the expansion land in March 2011.

Outstanding capitalized lease obligations relate to two lease agreements that we entered into
during 2006 with respect to our Rock Hill facility, one of which covers the facility itself and the
other of which covers certain furniture and fixtures that we acquired for use in the facility. The
carrying value of the headquarters facility and the furniture and fixture leases at March 31, 2011
and December 31, 2010 was $7.9 million and $8.3 million, respectively.

Our outstanding capitalized lease obligations at March 31, 2011 and December 31, 2010 were as
follows:

Table 8

March 31,

December 31,

(Dollars in thousands)

2011

2010

Capitalized lease obligations:

Current portion of capitalized lease obligations

$

198

$

224

Capitalized lease obligations, long-term portion

7,655

8,055

Total capitalized lease obligations

$

7,853

$

8,279

Financial instruments

We conduct business in various countries using both the functional currencies of those
countries and other currencies to effect cross border transactions. As a result, we are subject to
the risk that fluctuations in foreign exchange rates between the dates that those transactions are
entered into and their respective settlement dates will result in a foreign exchange gain or loss.
When practicable, we endeavor to match assets and liabilities in the same currency on our balance
sheet and those of our subsidiaries in order to reduce these risks. We also, when we consider it to
be appropriate, enter into foreign currency contracts to hedge exposures arising from those
transactions.

We do not hedge or trade for speculative purposes, and our foreign currency contracts are
generally short-term in nature, typically maturing in 90 days or less. We have elected not to
prepare and maintain the documentation to qualify for hedge accounting treatment under ASC 815,
Derivatives and Hedging, and therefore, we recognize all gains and losses (realized or
unrealized) in interest and other expense, net in our unaudited condensed consolidated statements
of operations and comprehensive income.

The net fair value of all foreign exchange contracts at March 31, 2011 reflected a nominal
unrealized gain at March 31, 2011. The foreign currency contracts outstanding at March 31, 2011
expired April 1, 2011. See Note 7 of the unaudited condensed consolidated financial statements.

Changes in the fair value of derivatives are recorded in interest and other income (expense),
net, in our unaudited condensed consolidated statements of operations and comprehensive
income. Depending on their fair value at the end of the reporting period, derivatives are recorded
either in prepaid and other current assets or in accrued liabilities in our unaudited condensed
consolidated balance sheets.

The total impact of foreign currency related items on our unaudited condensed consolidated
statements of operations and comprehensive income was a $0.6 million gain for the three
months ended March 31, 2011 and a $0.3 million loss for the first quarter of 2010.

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these
pronouncements on our condensed consolidated financial statements, see Note 1 to the unaudited
condensed consolidated financial statements.

Critical Accounting Policies and Significant Estimates

For a discussion of our critical accounting policies and estimates, refer to Managements
Discussion and Analysis of Financial Condition and Results of Operations  Critical Accounting
Policies and Significant Estimates in our Annual Report on Form 10-K for the year ended December
31, 2010.

Forward-Looking Statements

Certain statements made in this Form 10-Q that are not statements of historical or current
facts are forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Forward-looking statements include the cautionary statements and risk factors set
forth below as well as other statements made in the Form 10-Q that may involve known and unknown
risks, uncertainties and other factors that may cause our actual results, performance or
achievements to be materially different from historical results or from any future results
expressed or implied by such forward-looking statements.

In addition to statements that explicitly describe such risks and uncertainties, readers are
urged to consider statements in future or conditional tenses or that include terms such as
believes, belief, expects, intends, anticipates or plans to be uncertain and
forward-looking. Forward-looking statements may include comments as to our beliefs and expectations
as to future events and trends affecting our business. Forward-looking statements are based upon
managements current expectations concerning future events and trends and are necessarily subject
to uncertainties, many of which are outside of our control. The factors stated under the heading
Cautionary Statements and Risk Factors set forth below and those described in our other SEC
reports, including our Form 10-K for the year ended December 31, 2010, as well as other factors,
could cause actual results to differ materially from those reflected or predicted in
forward-looking statements.

Any forward-looking statements are based on managements beliefs and assumptions, using
information currently available to us. We assume no obligation, and do not intend, to update these
forward-looking statements.

If one or more of these or other risks or uncertainties materialize, or if our underlying
assumptions prove to be incorrect, actual results may vary materially from those reflected in or
suggested by forward-looking statements. Any forward-looking statement you read in this Form 10-Q
reflects our current views with respect to future events and is subject to these and other risks,
uncertainties and assumptions relating to our operations, results of operations, growth strategy
and liquidity. All subsequent written and oral forward-looking statements attributable to us or
individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You
should specifically consider the factors identified or referred to in this Form 10-Q and our other
SEC reports, including our Annual Report on Form 10-K for the year ended December 31, 2010, which
would cause actual results to differ from those referred to in forward-looking statements.

Cautionary Statements and Risk Factors

We recognize that we are subject to a number of risks and uncertainties that may affect our
future performance. The risks and uncertainties described in Item 1A in our Annual Report on Form
10-K for the year ended December 31, 2010 are not the only risks and uncertainties that we face.
Additional risks and uncertainties not currently known to us or that we currently deem not to be
material also may impair our business operations. If any of these risks actually occur, our
business, results of operations and financial condition could suffer. In that event the trading
price of our common stock could decline, and you may lose all or part of your investment in our
common stock. The risks discussed in Item 1A in our Annual Report on Form 10-K for the year ended
December 31, 2010 also include forward-looking statements, and our actual results may differ
substantially from those discussed in these forward-looking statements.

Except as required by the federal securities laws, we undertake no obligation to publicly
update or revise any forward-looking statement, whether as a result of new information, future
events or otherwise.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

For a discussion of market risks at December 31, 2010, refer to Item 7A, Quantitative and
Qualitative Disclosures about Market Risk, in our Annual Report on Form 10-K for the year ended
December 31, 2010. During the first three months of 2011, there were no material changes or
developments that would materially alter the market risk assessment performed as of December 31,
2010.

Item 4.

Controls and Procedures.

Evaluation
of disclosure controls and procedures

As of March 31, 2011, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the
Exchange Act) pursuant to Rules 13a-15 and 15d-15 under the Exchange Act. These controls and
procedures were designed to provide reasonable assurance that the information required to be
disclosed in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms and that
such
information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, in a manner to allow timely decisions regarding required
disclosures. Based on this evaluation, including an evalution of the rules referred to above in
this Item 4, management has concluded that our disclosure controls and procedures were effective as
of March 31, 2011 to provide reasonable assurance that the information required to be disclosed in
the reports we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms and that such information
is accumulated and communicated to management, including our Chief Executive Officer and Chief
Financial Officer, in a manner to allow timely decisions regarding required disclosures.

Changes in Internal Controls over Financial Reporting

There were no material changes in our internal controls over financial reporting during the
period covered by this Form 10-Q that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

The information set forth in Note 14 of the Condensed Consolidated Financial Statements in
Part I, Item 1 of this Form 10-Q is incorporated herein by reference.

Item 1A.

Risk Factors.

There have been no material changes from the risk factors as previously disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2010.

Item 6.

Exhibits.

The following exhibits are included as part of this filing and incorporated herein by this
reference:

3.1

Certificate of Incorporation of Registrant. (Incorporated by
reference to Exhibit 3.1 to Form 8-B filed on August 16, 1993, and
the amendment thereto, filed on Form 8-B/A on February 4, 1994.)

3.2

Amendment to Certificate of Incorporation filed on May 23, 1995.
(Incorporated by reference to Exhibit 3.2 to Registrants
Registration Statement on Form S-2/A, filed on May 25, 1995.)

3.3

Certificate of Designation of Rights, Preferences and Privileges of
Preferred Stock. (Incorporated by reference to Exhibit 2 to
Registrants Registration Statement on Form 8-A filed on January 8,
1996.)

3.4

Certificate of Designation of the Series B Convertible Preferred
Stock, filed with the Secretary of State of Delaware on May 2,
2003. (Incorporated by reference to Exhibit 3.1 to Registrants
Current Report on Form 8-K, filed on May 7, 2003.)

3.5

Certificate of Elimination of Series A Preferred Stock filed with
the Secretary of State of Delaware on March 4, 2004. (Incorporated
reference to Exhibit 3.6 of Registrants Annual Report on Form 10-K
for the year ended December 31, 2003, filed on March 15, 2004.)

3.6

Certificate of Elimination of Series B Preferred Stock filed with
the Secretary of State of Delaware on June 9, 2006. (Incorporated
reference to Exhibit 3.1 of Registrants Current Report on Form
8-K, filed on June 9, 2006.)

3.7

Certificate of Amendment of Certificate of Incorporation filed with
Secretary of State of Delaware on May 19, 2004. (Incorporated by
reference to Exhibit 3.1 of the Registrants Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2004, filed on
August 5, 2004.)

3.8

Certificate of Amendment of Certificate of Incorporation filed with
Secretary of State of Delaware on May 17, 2005. (Incorporated by
reference to Exhibit 3.1 of the Registrants Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2005, filed on
August 1, 2005.)

3. 9

Certificate of Designations, Preferences and Rights of Series A
Preferred Stock, filed with the Secretary of State of Delaware on
December 9, 2008. (Incorporated by reference to Exhibit 3.1 of
Registrants Current Report on Form 8-K, filed on December 9,
2008.)

3.10

Amended and Restated By-Laws. (Incorporated by reference to Exhibit
3.2 of Registrants Current Report on Form 8-K filed on December 1,
2006.)